Yemeni Economy in the [Archives:1998/03/Business & Economy]

January 19 1998

New Millennium
By: Ahmed Saleh Al-Faqeeh
Yemen’s foreign policy during the 2nd Gulf War caused the Yemeni economy the loss of well over 1.5 Billion dollars per year in terms of remittances from Yemeni workers in Saudi Arabia and other Gulf states. Add to that over 500 million dollars of annual aid to Yemen by the Saudi government and an equal amount from other countries. This situation divided the post-unification ruling partners, the Yemen Socialist Party (YSP), the People’s General Congress (PGC) and Islah, when the YSP felt that he can regain the Saudi and Gulf support in his political fight with his partners. Thus, it opposed any attempt to consider an aggressive monetary policy to absorb the losses through a restructuring reform program as proposed by the World Bank and the IMF. This caused a stagnation in the government’s activities from 1991 to 1994, which consequently lead to a defacto devaluation of the Yemeni riyal from 12 to 128 per US dollar thereby reducing the income of the majority of Yemenis by a solid 80%.
The war of 1994 was in one way a victory for those who decided to do without the Saudi and Gulf help. The post-war cabinet, presided over by Abdulaziz Abdulghani, presented a 1997 budget which recognized the above mentioned losses and the consequent devaluation of the Yemeni riyal. The latter was already a fact of life due to the huge amount of riyals printed to cover the losses.
In Table 1 there is a comparison between the 1993 and 1997 budgets in US dollars, which clearly shows that government employees shouldered most of the burden of Yemen’s losses when their incomes were reduced by almost 80%. This consequently reflected itself in reducing the government’s expenditures and the budget’s deficit. While the currency was devaluated by 90%, the loss in current revenues was only 50%, mainly taxes collected in Yemeni riyals. The single explanation for that is that taxes were doubled, adding additional burdens on Yemenis. The Yemeni economy at that time was recording negative growth and these additional revenues could not be due to economic expansion. However, despite the relative growth in current revenues, the overall 59% losses in them were offset by a sharp rise in capital revenue. Thanks to a sharp improvement in crude oil prices and additional production from new oil fields in the eastern provinces. The 1997 budget was a realistic monetary framework which prepared the economic ground for a sound development once the right plans are adopted.
Spoon Feeding the “Right Plans” It is self evident that the right plans should aim towards increasing the nation’s income of foreign currency. This would help to compensate the losses incurred and, consequently, enable the Yemeni populace to regain their lost incomes, let alone increase it. There are two ways to achieve this: one is hard work and sweat and the other is a short cut through restoring Yemeni-Saudi/Gulf relations, particularly on their economic side. The Yemeni government has chosen to concentrate on the latter. However, it started with a big tactical loss in the form of both the memorandum of understanding with Saudi Arabia, where Yemen gave up an old and good Yemeni territorial claim concerning the Assir area for virtually nothing, and the security treaty which the Saudis are not observing while the Yemenis are. It is now clear that continuing with this policy would only lead to more harm to Yemen’s strategic interests and weaken its national resolve and pride. Furthermore, even if this path led to anything of what the Yemeni government is looking for, the cost to the government will be very high, as far as the domestic politics are concerned. On the other hand, the economic burden that the ordinary Yemenis shouldered alone is preparing the grounds for national political unrest which can lead to serious political troubles. Although Yemen had already paid for its government’s shortcomings during the 2nd Gulf War in the form of the 1994 war, the economic side of the war was masked by the political slogan of defending Yemen’s unity. But any future trouble will clearly be an economic one.
Political Solutions 1- First of all, there is no point in trying to achieve a diplomatic breakthrough with Saudi Arabia using an unacceptable diplomat by the other side. And as such the Yemeni government should seriously consider changing its foreign minister. 2- The Yemeni government must completely refrain from any attempt to exchange Yemeni territories for economic gains whatever the frustrations or temptations are. 3- Yemen should stop it’s face-loosing quest for joining this or that group of countries. 4- Yemen should continue it’s constructive policy of having balanced relations with Arab, Muslim, and foreign countries. 5- Yemen should substantially improve its human rights record at all levels, starting with removing the heavy security and military hands from the daily life of Yemenis in the southern and eastern provinces. 6- A real national reconciliation must be achieved, starting with stopping the trial of the 16 politicians and including them in the general amnesty declared after the war. 7- In order to establish a healthy democratic environment, the PGC should refrain from dividing the opposition parties and monopolizing the NGOs and civil society organizations using the security forces, public funds and media.
Economic Solutions 1. Economic development is a collective effort in which every sector of the society should participate. The strange situation of the workforce should be corrected. ( See Table 2).
Table 2 shows that government employees form 40% of the total Yemeni workforce. They receive very low wages, thus, leading to the widespread corruption and bribery. The table also shows that one million able Yemeni males are unemployed. The low number of farmers indicates that in rural areas females are largely involved in agriculture, but do not get paid, while, females in urban areas are mainly jobless. In order to efficiently utilize the Yemeni workforce, the government should consider the following steps:- 1. finding out the exact number of productive government employees, and transfer the “dead wood” to the social security payroll with their current pay. 2. Substantially increasing the wages of the real workers in the public sector, combating corruption, and improving output. 3. Encouraging the formation of NGO-owned companies to introduce poultry and other livestock rearing such as chickens, rabbits and bees at individual households while the companies provide feed, medicines, equipment, know-how and marketing in both rural and urban areas, thus taking care of the unemployed female problem. 4. Giving small maintenance contracts for government and public buildings, recreational, medical, and educational facilities to different groups of skilled laborers such as carpenters, painters, plumbers and electricians plus to an accountant–administrators to form a small company among themselves. 5. Dividing cities into small districts and giving cleaning contracts to groups of laborers formed in the same manner above. 6. Adopting a mandatory conversion from well irrigation to dripping and spraying methods using groups of laborer contractors formed in the same manner mentioned above.
Consumer Industry 7. Adopting a clear and aggressive policy to help entrepreneurs to establish small to medium-size production facilities, even family industrial projects, to produce thousands of small consumer items which are currently imported from Asian countries. Yemen with it’s current low paid, cheap labor has an important competitive edge, even compared to some neighboring African countries. This advantage can very well boost Yemen’s earnings of foreign currency through export as well as boosting the packaging, design and printing industry. 8. In order to achieve the above mentioned goals, the government must conduct a serious reform program in the biggest “criminal organizations” which are in the so called the Yemeni banking sector. Nowadays, every board-of-directors member in Yemeni banks enjoys unlimited overdraft facilities. They utilize Yemeni depositors money for their own benefit while blocking access to credit facilities by serious entrepreneurs that can’t provide their set requirements of unreasonable guarantees. All Yemeni banks do not have any project assessment departments and are assessing guarantees on an entirely individual basis. With this kind of corrupt and ill-managed banking system, no real development could take place in this country.
Special labor-intensive industries 9. The EU countries, US, and Canada assigned quotas for under- developed countries to export ready-made garments, toys, cloths and other similar products which Yemen is not currently benefiting from. Businessmen from several Asian countries are searching for investment chances in countries like Yemen in order to make use of the quota allocations which their own countries have fully utilized. Being as yet untapped, those industries could be the basis for reviving several areas in Yemen like Mokha, Hodeida, Taiz and Hadhramaut by creating free industrial zones within each area to be ready for such export oriented industries. The coastal cities of Yemen are already prepared for such ventures due to the availability of manpower, ports, electricity and communication facilities.
Fishing Industry 10. Yemen enjoys rich territorial waters extending for more than 2000 km around the country. Our problem with fishing is know-how, capital, and infrastructure. A fast and practical approach is to merge capital and know-how with natural resources as we are doing with oil and gas. With globally rising concerns for marine life due to heavy fishing, it was decided that countries with large capacity fishing fleets should cut down the size of their fleets. Some of them like Spain are having to lay off thousands of fishing vessels out of their 20,000 pieces. Yemen could capitalize on this opportunity by making deals to purchase some of those ships. The cost can be met over a period of three to five years out of the fish-sales revenue. Experienced foreign crew members can be recruited to operate those ships and provide Yemeni crew members with hands-on training. 11. Encouraging Yemeni entrepreneurs to invest in fisheries infrastructure, e.g. cold stores, packing facilities, marketing companies, vessel services and maintenance facilities, etc. 12. Establishing marine science colleges and institutes at Yemeni coastal cities.
Finally To conclude this baby-sitting economic article, I must note that by creating more jobs and income sources, the natural resources return could be employed in creating vast water desalination facilities and pipelines to solve anticipated water problems. Also, the revenue can be invested in viable economic activities that could create an income source which replaces natural resources returns once they expire.